Aurelia Butler

The failure of Silicon Valley Bank has torn into global markets, with investors ripping up their forecasts for further rises in interest rates and dumping bank stocks around the world.Government bond prices soared on Monday, posting some of the biggest rallies since the crisis of 2008, as fund managers ramped up bets that the US Federal Reserve would now leave interest rates unchanged at its next scheduled monetary policy meeting this month to steady the global financial system. As recently as last week, markets were braced for another half-percentage point rise.Meanwhile, bank stocks dropped heavily. Europe’s Stoxx banking index fell 5.7 per cent, taking its decline since the middle of last week to just over 11 per cent, with all 22 stocks in the index in negative territory. Several lenders suffered double-digit declines on Monday alone, including Austria’s Bawag Group and Germany’s Commerzbank. Spain’s Banco Sabadell fell more than 9 per cent.Futures contracts tracking Wall Street’s S&P 500 and the tech-heavy Nasdaq 100 were up 0.2 per cent and 0.6 per cent ahead of the New York open, after US regulators said on Sunday that SVB depositors would be fully repaid and unveiled emergency funding measures in a bid to contain the fallout. In the UK, the Bank of England brokered a deal to sell the UK arm of SVB to HSBC for £1.But futures in big US banks fell about 2 per cent and investors were picking off weaker names. Shares in First Republic, another San Francisco-based bank, dropped as much as 68 per cent in pre-market trading after it said on Sunday it would receive $70bn in funding from JPMorgan and the Fed’s new backstop plan. The failure of SVB, and closure of Signature Bank have come just months after the shortlived crisis in UK government bonds, underlining the risks buried in the financial system that are coming to light as central banks remove the largesse that shielded markets following the outbreak of the Covid-19 pandemic. Investors and analysts said policymakers at the Fed and elsewhere would need to tread carefully as they sought to hose down inflation.“The SVB situation is a reminder that Fed hikes are having an effect, even if the economy has held up so far,” said Mark Haefele, chief investment officer at UBS Global Wealth Management in a note to clients. “Concerns over bank earnings and balance sheets also add to the negative sentiment for . . . equity markets.”Futures markets show investors believe the US central bank will temper the path of interest rate rises from here, despite Fed chair Jay Powell’s reminder a week ago of his determination to pull down inflation, and despite data on Friday showing that the US economy added 311,000 jobs, higher than the 225,000 forecast by economists.Refinitiv data shows that traders see a 15 per cent probability that the US central bank will leave rates unchanged later this month. Expectations for a half-point rise have evaporated, leaving a roughly 85 per cent chance that the Fed will opt to raise interest rates by a quarter-percentage point to a target range between 4.75 and 5 per cent.Goldman Sachs said on Monday that it no longer expected any increase at the Fed’s meeting ending on March 22 “in light of recent stress in the banking system”.Investors also scaled back their bets on how high the European Central Bank would raise its deposit rate later this year to slightly above 3.5 per cent, down from a peak of 4.2 per cent only last week. The shake-up in bond markets was substantial. Germany’s interest rate-sensitive two-year bond yield plummeted 0.48 percentage points to 2.62 per cent on Monday, as bond markets rallied sharply in response to fading expectations of further increases in borrowing costs. The rate has fallen from the 14-year high of 3.3 per cent it hit last week, showing how sharply investors have repriced their rate expectations since SVB’s collapse.In the US, the benchmark 10-year government bond yield slipped 0.16 percentage points to 3.54 per cent. The two-year Treasury yield fell 0.25 percentage points to 4.33 per cent.

George Saravelos, a strategist at Deutsche Bank, said the SVB rescue package from the Fed, which includes an offer to absorb government debt and mortgage-backed bonds at above-market prices, represented a new form of quantitative easing — the bond-buying programme that US policymakers fired up after the pandemic hit to stabilise the financial system.“Both the speed and end point of the Fed hiking cycle should come down,” Saravelos said. “We’ve learnt two things over the last few days. First, that this monetary policy tightening cycle is operating with a lag, like every other. Second, that this tightening cycle will now be amplified due to stress in the US banking system.” Michael Every, an analyst at Rabobank, said the implications of the Fed’s “bailout of Silicon Valley venture capitalists funding Instagram filters that make cats look like dogs” were potentially “enormous”. “The Fed is de facto allowing a massive easing of financial conditions as well as soaring moral hazard,” he said in a note to clients.Currencies that perform well in times of stress also rallied. The Japanese yen and the Swiss franc both climbed around 1 per cent against the dollar.The rapid collapse of SVB had made market participants “more aware again that the Fed will eventually break something if it keeps raising rates”, said Lee Hardman, currency analyst at MUFG. The bank’s collapse had also “taken the wind out the US dollar’s sails” by highlighting risks associated with rising rates, Hardman added. A measure of the dollar’s strength against a basket of six international peers fell 0.6 per cent on Monday.Additional reporting by Martin Arnold in Frankfurt

Video: Fractured markets: the big threats to the financial system More

Interest rate futures put the chance of no change in Bank Rate on March 23 at about 40%, up from 25% earlier on Monday and around 10% last week. Bets on a quarter-percentage point rate hike fell to about 60%.The move followed a similar drop in expectations about a rate hike by the Federal Reserve this month after U.S. authorities announced plans to limit the fallout from the collapse of SVB. More

Brussels has kicked off a major ideological battle over big state interventions in Europe’s economy, as it finalises proposals to drive down carbon emissions and match US ambition on the green economy. The European Commission will this week unveil long-awaited proposals aimed at boosting green industry and domestic supplies of key raw materials, the main planks of the EU’s response to industrial competition from US and China. Last week Brussels put forward reforms that would enable capitals to match subsidies available in the US and elsewhere. But the draft proposals have sparked a fierce debate within Brussels, with more liberal EU member states objecting to distortions of free trade and open markets. Among the key points of friction are the inclusion of green production targets, potential barriers to imports of raw materials, and the extent to which constraints on public subsidies should be eased. “The balance has gone in this discussion — we are only talking about sovereignty,” said an EU diplomat. “By doing these things we are going to completely restructure the European economy in a way we are not confident will actually bring us to where we need to be in 10 or 20 years time.” Some of the most fraught debates have been over the net zero industry proposal, a direct response to the US Inflation Reduction Act announced last August. The US bill provides $369bn for clean energy technologies, a massive incentive package that has left EU officials fearing an exodus of companies across the Atlantic.Under leaked drafts of the EU response, domestic production in five key sectors — solar, wind, heat pumps, batteries and electrolysers — would need to meet at least 40 per cent of the bloc’s total requirements. The highest targets set are for the wind and heat pump sectors, at 85 per cent. But specific industry targets have been repeatedly removed and restored in drafts of the legislation as negotiations over the final proposal continue into this week. According to one EU official, a pro-competition camp has pressed for a more open list of technologies that would be considered as “strategic net zero” industries, while Thierry Breton, commissioner for the internal market, wanted a more fixed set of sectors. “Breton is more about boosting what we have,” they said.Officials are also debating rules requiring companies exporting minerals to the EU to meet criteria, such as environmental standards and labour rights, that would potentially create formidable barriers to imports from some developing countries. One diplomat from a developing nation said that the EU was advancing “at a rapid pace a whole set of requirements” that were making it “very expensive” to trade with the bloc.The EU is already immersed in a tough discussion over how far to relax restrictions on state aid, as the bloc seeks to compete with US and Chinese subsidies. Valdis Dombrovskis, the trade commissioner, warned journalists on Thursday of “the risks of going into a costly and inefficient subsidy race”.Member states including the Netherlands, Sweden, Denmark and Ireland are among those stressing the importance of maintaining a level playing field within the single market, rather than enabling bigger economies to pour large quantities of public subsidies into industry. Simon Coveney, Ireland’s enterprise minister, said the EU must be “careful that we don’t go too far” in loosening subsidy rules. He also warned against “protectionist policies”. “A small open economy like ours will lose out,” Mariin Ratnik, Estonia’s chief trade diplomat, told the FT.One EU diplomat said that France in particular is pushing the opportunity to shape Europe’s industrial policy, which Paris has long seen as too liberal. “We are building European competitiveness on subsidies. Free markets and open trade are no longer at the table,” the diplomat said.Raphaël Glucksmann, a French socialist MEP who chairs the European parliament’s foreign interference committee, said that Europe’s push for cheap solar energy was a good example of how the EU’s free trade policy had led to heavy dependencies on other states. “Thirty years of ideology have led to dependency, which is the big paradox of our time. Thirty years of deregulation and free trade policy have led to the triumph of the Chinese Communist party,” he said. “That is the Faustian pact between pro market ideologues and communism. This is very ironic but this is the result we are in now.” More

(Reuters) – A wave of relief swept over Silicon Valley Sunday following a tense weekend of board meetings, emergency funding plans and pleas for help after regulators stepped in to backstop the region’s embattled namesake bank.Banking regulators said Sunday evening that depositors at Silicon Valley Bank, which was shuttered Friday, would have access to their funds Monday, putting to rest fears that startups would struggle to pay their employees this week. The bank’s closure had followed interest rate hikes that hurt its startup customers and a failed capital raise attempt, spurring deposit withdrawals.Despite the palpable relief, questions still remained about the funding environment for startups, which had come to rely on Silicon Valley Bank for support to back unproven businesses that larger banks eschew. And the bank still had not found a buyer as of Sunday, which was a hope of many venture capital firms and tech founders hungry for positive news.“This is a huge step in restoring confidence in the startup community. Before this move many startups were planning emergency measures which would have likely led to more layoffs and furloughed employees. The actions have provided much needed certainty that everyone can make payroll on Monday,” said Jon Sakoda, founder of early stage venture firm Decibel Partners.The bank’s sudden shutdown sent a chill through Silicon Valley amid an otherwise gloomy period marked by tech layoffs and a pullback in spending as consumers tightened their wallets. Company executives, many of whom stashed all of their funds in Silicon Valley Bank, took to Twitter and other social media networks to beg for relief.Sam Altman, who heads OpenAI, known for its ChatGPT artificial intelligence software, was among those who answered the call, offering emergency funding to startups to help weather the uncertainty and pay their employees, Reuters reported Sunday.Tech investor Asheesh Birla had spent the last three days working nonstop, between advising companies about how to make payroll, or urging people to call their local politician. He is very happy with the federal government’s decision to backstop deposits but not make the bank’s equity holders whole, he said.“Companies should never have to worry about whether or not their deposits are safe,” he said.A joint statement Sunday by U.S. government bodies including the Treasury Department and Federal Reserve indicated taxpayers would not bear any cost associated with the new plans around Silicon Valley Bank. However, shareholders and some unsecured creditors won’t receive the same protections.Birla predicts that in the next few days, startups will rush en masse to open accounts at large banks. And for companies that hold considerable cash positions, he thinks that there will be a surge of interest in hiring treasurers who will work to minimize the amount of cash companies are holding at any moment.Silicon Valley Bank until now had been a reliable source of funding for startups relative to other banks.Doktor Gurson, CEO of Rad AI, said the news represented a “collective sigh of relief” after days worrying about how to make payroll for his startup with some 65 employees. “I lost a couple years of my life over the weekend to be honest. It’s been a bit of a roller coaster.”Still, the saga is far from over. Even as Rad AI plans to move money to new accounts in bigger banks, exactly when it can access all its SVB funds remains unclear, he said. “I don’t know that there’s any safe place to go,” he said. “I’m still a little bit nervous of what could happen.”He added, “We’ll still need to assess what we’re doing moving forward.” More

SINGAPORE (Reuters) – The U.S. dollar slid on Monday as authorities stepped in to cap the fallout from the sudden collapse of Silicon Valley Bank, with investors hoping the Federal Reserve will take a less aggressive monetary path. The U.S. government announced several measures early on Monday Asian hours, and said all SVB customers will have access to their deposits starting on Monday. Officials also said depositors of New York’s Signature Bank (NASDAQ:SBNY), which was closed Sunday by the New York state financial regulator, would also be made whole at no loss to the taxpayer.The dollar index, which measures the U.S. currency against six rivals, fell 0.153% at 104.080. The Japanese yen strengthened 0.34% to 134.52 per dollar, the highest in a month as investors made a move to safe-haven Asian currencies. “The currency market is still digesting all the news related to the collapse of SVB,” said Carol Kong, currency strategist at Commonwealth Bank Of Australia.”Given all the measures taken by the authorities the market should be calmer at least for the time being, but if there are concerns about regional banks, we could easily see the dollar and Japanese yen rally again.”The euro was up 0.44% to $1.069, while sterling was last trading at $1.2085, up 0.47% on the day. The Australian dollar rose 0.79% to $0.663, while the kiwi rose 0.36% to $0.616.In cryptocurrencies, bitcoin last rose 11.12% to $22,330.00. Ethereum last rose 12.12% to $1,598.90.The SVB collapse led investors to speculate that the Fed would now be reluctant to rock the boat by hiking interest rates by a super-sized 50 basis points this month, with the spotlight firmly on Tuesday’s inflation data.”From the perspective of the FOMC, their concern is still inflation and inflation has not really decelerated,” Kong said, adding that tomorrow’s CPI will continue to show that inflation remains persistently high.”Given what’s happened in the U.S. financial system, a 25 basis point hike is more likely than a 50 basis point hike.” Fed fund futures surged in early trading to imply only a 17% chance of a half-point hike, compared to around 70% before the SVB news broke last week.========================================================Currency bid prices at 0046 GMTDescription RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar $1.0690 $1.0639 +0.49% -0.22% +1.0704 +1.0648 Dollar/Yen 134.4550 134.9200 -0.47% +2.33% +135.0050 +134.2000 Euro/Yen 143.76 143.70 +0.04% +2.47% +144.2100 +143.1100 Dollar/Swiss 0.9183 0.9216 -0.36% -0.69% +0.9201 +0.9152 Sterling/Dollar 1.2086 1.2036 +0.45% -0.03% +1.2099 +1.2040 Dollar/Canadian 1.3758 1.3827 -0.49% +1.55% +1.3823 +1.3759 Aussie/Dollar 0.6623 0.6582 +0.65% -2.82% +0.6646 +0.6587 NZ 0.6154 0.6135 +0.31% -3.08% +0.6172 +0.6140 Dollar/Dollar All spotsTokyo spotsEurope spots Volatilities Tokyo Forex market info from BOJ More

SYDNEY (Reuters) – U.S. stock futures rallied in Asian trade on Monday as authorities announced plans to limit the fallout from the collapse of Silicon Valley Bank (SVB), while investors wagered future hikes in U.S rates would now be less aggressive.In a joint statement, the U.S. Treasury and Federal Reserve announced a range of measures to stabilise the banking system and said depositors at SVB would have access to their deposits on Monday.The Fed said it would make additional funding available through a new Bank Term Funding Program, which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.The moves came as authorities took possession of New York-based Signature Bank (NASDAQ:SBNY), the second bank failure in a matter of days.Analysts noted that, importantly, the Fed would accept collateral at par rather than marking to market, allowing banks to borrow funds without having to sell assets at a loss.”These are strong moves,” said Paul Ashworth, head of North American economics at Capital Economics.”Rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age,” he added. “But contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work.”Investors reacted by sending U.S. S&P 500 stock futures up 1.2%, while Nasdaq futures rose 1.3%.MSCI’s broadest index of Asia-Pacific shares outside Japan held steady as investors pondered the consequences for regional markets.Japan’s Nikkei fell 1.1% in choppy trade, while South Korea added 0.1%.Such was the concern about financial stability, that investors speculated the Fed would now be reluctant to rock the boat by hiking interest rates by a super-sized 50 basis points this month.Fed fund futures surged in early trading to imply only a 17% chance of a half-point hike, compared to around 70% before the SVB news broke last week.The peak for rates came all the way back to 5.14%, from 5.69%, last Wednesday, and markets were even pricing in rate cuts by the end of the year.That, combined with the shift to safety, saw yields on two-year Treasuries fall further to 4.51%, a world away from last week’s 5.08% peak.Longer-dated yields, however, edged up as the curve steepened.”Accelerating your pace of hikes in the face of a significant bank failure may not be the wisest play for the Fed, especially if subsequent problems emerge stemming from similar root causes – underwater rates portfolios,” said John Briggs, global head of economics at NatWest Markets.Still, much will depend on what U.S. consumer price figures reveal on Tuesday, with an obvious risk that a high reading will pile pressure on the Fed to hike aggressively even with the financial system under strain.The European Central Bank meets on Thursday and is still widely expected to lift its rates by 50 basis points and to flag more tightening ahead, though it will now have to take financial stability into account.In currency markets, the dollar dipped 0.3% on the safe-haven Japanese yen to 134.63, though that was well off its early low. The dollar eased 0.4% on the Swiss franc, while the euro firmed 0.4% to $1.0690 as short-term U.S. yields dropped.Gold climbed 0.6% to $1,879 an ounce, having jumped 2% on Friday. [GOL/]Oil prices edged higher, with Brent up 10 cents at $82.88 a barrel, while U.S. crude rose 26 cents to $76.94 per barrel. More

China is set to tighten its grip on global cobalt supply, as the price of the key metal for electric-car batteries hits a 32-month low off the back of a surge in production.Over the next two years, China’s share of cobalt production is expected to reach half of global output, up from 44 per cent at present, according to a report by Darton Commodities, a UK-based cobalt trader.The increase comes despite western efforts to gain control over supply chains for critical minerals such as cobalt, lithium and nickel, which are essential for making electric-car batteries. Chinese refining activity reached 140,000 tonnes in 2022, more than double its level of five years ago, as volumes processed in the rest of the world stagnated at the 40,000 tonnes mark, handing Asia’s largest economy a 77 per cent global share of refining capacity.China’s growing role in cobalt supply comes as a 12-month rally for the metal has spun into reverse, with prices dropping 60 per cent to $16 a pound, from their peak above $40 a pound in May.“A lot of things converged at the same time to push the market down: the relaxation of logistics issues, weak consumer electronic sales and a technology shift towards lower or no cobalt EV batteries,” said Caspar Rawles, chief data officer at Benchmark Mineral Intelligence, a pricing agency. Global cobalt output increased 23 per cent or by 35,000 tonnes in 2022 over the previous year, according to Darton. That was driven by Swiss commodities group Glencore ramping up production at Mutanda, the world’s largest cobalt mine in the Democratic Republic of Congo, as well as Indonesia emerging as a major producer.The supply surge was more than double the demand increase, leading to the price collapse. Demand was hit by soft sales of portable electronics globally, draconian Covid-19 lockdowns in China, and a shift in the Chinese electric vehicle market towards lower-range batteries that do not use cobalt.One trader said there was a “double whammy” as Chinese cobalt refineries and consumers destocked due to weaker consumer demand, but the market was now asking “when does China come back” in terms of demand.Lower cobalt prices provide some relief to automakers worried about the cost of raw materials for electric batteries, but raise big challenges for getting projects outside of China off the ground. In the US, Washington’s concerns over China’s dominance of the cobalt supply chain have led to substantial incentives for cobalt production domestically or in countries deemed friendly to America. However, those incentives, codified in the Inflation Reduction Act, will take years to yield any results. Automakers have been pushing to develop battery chemistries that use less cobalt because of concerns over child labour in the DRC, which generates three-quarters of global supply.Cobalt is a byproduct from copper or nickel mines, prices of which have remained relatively strong, meaning supply is not readily reduced even when cobalt prices drop.However, industry sources said small-scale informal mining, which contributes between 15 and 30 per cent of DRC output, has already cut back, with some artisanal producers shifting to copper instead.Steven Kalmin, Glencore’s chief financial officer, said last month during an analysts call that “we will look to be dynamic around managing cobalt production and sales” to manage lower prices.Cobalt prices could fall further if Tenke Fungurume, the world’s second-largest cobalt mine owned by China’s CMOC, is allowed to resume exports from the DRC after a tax dispute led to an export ban last July. It has kept producing despite the ban, stockpiling 10,000 to 12,000 tonnes of material, equivalent to 6 per cent of last year’s demand, according to market estimates.The projected increase in China’s share of global cobalt mining is largely due to the start up at CMOC’s Kisanfu copper-cobalt mine in the DRC this year. More